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Friday’s spot cheese call ended the week on a softer note with blocks down 4 ¼ cents to $1.48 on 1 trade, the only trade all week. While barrels edged down a ¼ cent to $1.4175 on 5 trades, and weekly trades tallying 16. Last week’s meetings in Chicago had a mostly bearish sentiment to cheese as the industry is still eating through large inventories of barrels.

USDA’s March Cold Storage report last week showed American Cheese inventories up 11% at 802.7 mil pounds. Keep in mind there is increased production of barrels in the country which is contributing to the higher cold storage numbers, but either way we have more cheese.

Class III futures in the past week have been choppy to say the least with the 2nd half pack settling at $16.49 on Friday. From a technical perspective, we’d estimate the market wants to jump, but the bearish fundamentals have resulted in a more choppy trade recently (see chart). If the class III (or cheese prices) takes out the March highs, we’d turn dramatically bullish from a technical perspective. We’re not there yet today, but we’re watching the charts. Many times the charts do something of note, and the news comes out later. For now, we look for another choppy start to this week.

July-Dec Class III Futures – Daily Chart

This Thursday afternoon the USDA will release the Dairy Products report which the market will scrutinize. February’s report was surprising as there was a big shift in cheddar production in California, up 31.5% while mozzarella production fell 12%.

Dry whey futures were choppy this week with a supportive undertone to the market. The bulls should be concerned with the Western mostly DMN low end for whey dropping 3 cents to 42 cents/lb. last week. Last week’s AMS report printed 51.14 cents (down from 53.41 cent highs) on 7.68 mil pounds. Once this AMS whey price starts moving in one direction it’s kind of like a massive aircraft carrier making a turn.

NFDM & Butter

The spot NFDM market edged a penny lower on Friday to 86 ¾ cents on 7 loads trading hands. The sentiment is still pretty weak coming out of the meetings last week in Chicago. It seems there is plenty of pushback in the upper 80 cent/lb. range, and low 90’s. At these levels it seems like we will see a wave of product hitting the market from willing sellers. The question is will the end users make a move or are they content to stay hand to mouth? Buyers have been handsomely rewarded staying in the spot market the past few years, but corporate budgets definitely incentive buying at these levels. It seems like there are sizable bids in the cash market between 80-82 cents/lb. where we saw big volumes printed on the AMS reports. We may need stay at these levels to clear another big block of powder, and may need someone with deep pockets in Europe to step in again.

Another concern is what global import demand is looking like for the next year, after a flat 2016. FCStone’s estimates are for another flat year for import growth in 2017 while excluding 2 heavyweights: China and Russia. With increased milk expected to continue on the horizon, the market will be fighting for market share that currently is not growing. Keep in mind many of these international markets are price sensitive.

Buoyant EU and Oceania fat prices seem to be a key reason for firm domestic butter prices. There is talk the US may be able export some butter which may tighten stocks up a bit. Although the bigger story is the US won’t be drowning in cheap imported fat this year. Domestically it feels like butter can soften more as we have plenty of cream floating around, and churns are reluctant building inventories at high prices. Ice cream production has started pulling more cream off the market which should seasonally support the market.

Grains

The corn markets softened on Friday as the market is concerned over a slowing export program. Speculative funds also added to their short position thru last Tuesday according to the CFTC COT report. And we’d guess they added thru last Friday as well. That’s a lot of bearish fund money for the time of year – and that along will make for some interesting market moves over the next few months in our estimation. In fact, cold, rainy and snowy weather over the weekend sparked a 5 cent rally in corn overnight led in part by wheat. Chicago Wheat is up 10-12 cents overnight and Kansas City Wheat is up 14-18 cents. First the freezing temps, then snow knocking down wheat in KS is leading to talk of “disaster” situation. We will see how it plays out, but look for a possible barn-burner of a rally on the grain complex due to weather. Planting progress is expected to about 35% vs 30% on avg. this afternoon.

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